1、 Trend analysis
Copper prices have slightly decreased this week. As of October 16th, the copper price was reported at 110565 yuan/ton, a decrease of 1.31% from the beginning of the week and a year-on-year increase of 29.59%.
LME copper inventory
According to data released by the London Metal Exchange (LME). LME copper inventory has slightly decreased, with 255900 tons of LME copper inventory as of the weekend, up 5.4% from the beginning of the week.
Macroscopically, the suppression on the macro level has significantly increased this week. The September minutes of the Federal Reserve showed that most officials believe that further interest rate hikes may still be needed this year. The accelerated rise in CPI in September has once again raised expectations of interest rate hikes, and the high operation of the US dollar index has suppressed the valuation of non-ferrous metals.
Supply side: The supply side presents a dual constraint pattern of “tight mining and reduced smelting”. The spot price of copper concentrate processing fee TC has fallen to -238 US dollars/ton, the lowest level since September 2007, and the domestic electrolytic copper smelting operating rate has hit a new low since the same period in 2014. In October, domestic electrolytic copper production is expected to drop to 1084700 tons, the lowest point of the year. The driving force for production reduction has shifted from routine maintenance to proactive reduction by smelters. Antofagasta’s copper production in the third quarter increased by 7% month on month but decreased by 8.3% year-on-year. BHP Billiton lowered its production guidance for the 2027 fiscal year, and the supply elasticity of the mining sector continues to be limited. However, this week’s narrative focus shifted from supply to inventory and basis, with a significant increase of 20000 tons in copper inventory certificates on the previous exchange, becoming a direct trigger for the weakening of copper prices.
Demand side: The demand side exhibits obvious price elasticity characteristics, and the high price suppression effect has become apparent. At the beginning of the week, when the spot price surged to 112160 yuan, downstream copper rod and copper tube enterprises showed a significant weakening of their willingness to receive goods, and procurement became wait-and-see. The marginal improvement in transactions was only after prices fell. The operating rate of cable companies in the first week of October decreased by 1.94 percentage points month on month to 60.19%, and the demand for refined copper rods continues to be under pressure. The apparent consumption of refined copper in September was 1.39 million tons, a decrease of about 60000 tons compared to the same period last year, and the quality during the traditional peak season was weaker than in previous years. However, the structural highlights still remain: investment in the power grid is expected to be concentrated in the fourth quarter, and the demand for new energy vehicles and energy storage tracks is resilient. The annual sales of new energy vehicles are expected to reach 19 million units, providing bottom support for copper demand.
Influencing factors:
On the negative side: Firstly, the expectation of the Federal Reserve raising interest rates is heating up and the strengthening of the US dollar is suppressing valuations; Secondly, the inventory of the previous period was replenished by 20000 tons per week, ending the four week destocking. The premium of spot goods for the current month’s contract sharply decreased from 1080 yuan to 420 yuan, and the support for tight positions in recent months has substantially loosened; Thirdly, BHP and the Escondida copper mining union reached an agreement to avoid strikes, easing concerns about supply disruptions and triggering profit taking. Positive factors: Firstly, the deep negative value of TC has forced smelting production to decrease, and the production in October has fallen to the lowest point of the year, forming rigid support; Secondly, LME copper inventory has been reduced from 6425 tons to 226600 tons, with Cash/3M maintaining a premium, and the tight overseas spot market pattern has not changed. Under the interweaving of long and short factors, copper prices are showing a tug of war trend at high levels.
In summary, the core driving force behind the weakening of copper prices this week comes from the resonance between macro suppression and domestic inventory replenishment, but the medium-term support composed of tight balance at the mining end and reduced smelting production has not collapsed. The short-term contradiction lies in the fact that macro level concerns about interest rate hikes and tariffs suppress risk appetite, while micro level downstream acceptance of prices above 110000 yuan is limited. But against the backdrop of smelting losses expanding to around 5000 yuan/ton, the rigid constraint of supply contraction will eventually emerge. It is expected that copper prices will mainly fluctuate and weaken next week.
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